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Estimate your income before being taxed

Updated: Jun 9, 2023

You must be aware of the responsibilities that come along with earning your own income as an employee in Malaysia. Paying your tax is one of them (Cukai Pendapatan). As an employee, it is the responsibility of your employer to pay your income taxes to the Lembaga Hasil Dalam Negeri Malaysia (LHDN), also known as Inland Revenue Board (IRB).

Understanding the fundamental income tax calculation is still beneficial. It is your responsibility to file your income tax return even though your company will pay your taxes for you.

Do you understand how your taxes are determined? Are you aware that Malaysia has a progressive income tax system, which means that the higher rate is only applied to amounts that are higher than the base rate? Are you familiar with the distinctions among tax exemptions, tax relief, tax rebates, and tax deductions? How do you increase your tax return?

What is an Income Tax?

Governments levy many types of taxes on organizations and people who make a living. Tax revenue is used to pay for public services and community improvements like infrastructure and healthcare. The level of taxation varies from nation to nation.

In Malaysia, income taxes are “territorial”, which means that a person or corporation is only subject to them on income obtained within the nation. Depending on a person’s occupation and length of service in Malaysia, personal income taxes are either progressive or flat.

Income tax is a charge assessed in Malaysia on all income made by both individuals and businesses. Depending on the type of income it pertains to, it is levied at a varied rate. To pay any taxes that are due or to be reimbursed for overpaid taxes, people and businesses must file their taxes by the deadline.

The government collects income tax to fund almost all expenditures related to the advancement of our nation. It is used, for instance, to pay the salaries of government employees, maintain the nation’s infrastructure and facilities, fund scholarships, provide amenities like parks for public recreation, support educational institutions, advance healthcare initiatives, ensure national defense and security, pay pensions and conduct scientific and medical research.

Who should pay taxes?

According to LHDN, a person (resident or non-resident) is taxed if they make at least RM 25,501 in yearly employment income (after EPF deduction). “Employees Provident Fund”, is a required savings and retirement program for employees working in the Malaysian private sector.

A non-resident person is expected to pay a flat rate of 30% of their entire taxable income in taxes. Pricewaterhouse Coopers (PwC), one of the largest international accounting firms, states that qualified knowledge workers, such as architects, engineers, and scientists, who live in Iskandar Malaysia, are subjected to a 15% tax rate “on income from an employment with a designated company engaged in a qualified activity in that specified region.” A qualified resident under the Returning Expert Program who is employed by someone in Malaysia will pay the same rate.

What happens if you do not file your taxes on time?

You can still submit your income tax return. However, you must pay interest. The Inland Revenue Board of Malaysia (LHDN) states that failure to pay your taxes on time would result in a 10% increase in the amount of tax that is due.

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